October’s End of Month Decline, Healthy or Ominous?

On Monday market pros were wondering if October’s stock surge would lead to a slump in November of similar magnitude?

As you may know October 2011 was the best month for stocks since 1974 which the broad market soaring about 14%.

However on Monday – even before the calendar turned, “Institutional investors hit the sell button,” explains trader Steve Grasso, raising concerns that the big bull catalyst may have played itself out.

Although some of October's gains were generated by relatively strong corporate profits, a sizable chunk were triggered by euphoria over Europe's plan to contain its sovereign debt crisis. But skepticism returned as Italian and Spanish bond yields soared.

And Tokyo caught the Street off its game Monday with the Bank of Japan weakening the yen to help Japanese exporters. Japan’s currency hit a post-World War II high against the dollar and the move hurts Japanese exporters by making their goods more expensive for overseas customers.

Considering all the moving parts, how should you position? Should you expect a decline in November?

Strategy Session with the Fast Money traders

Largely the Fast Money traders remain constructive on the market.

Trader Pete Najarian thinks the pullback is probably nothing more than healthy profit taking. For a read he suggests watching the Vix. “Unless it breaks above its 50-day which is 29 – I think we’re only looking at orderly consolidation.”

Trader Steve Grasso is concerned about the move by the BofJ because a weaker yen makes the US dollar stronger – and a strong dollar is negative for commodities and related stocks such as Materials, Industrials and Energy.

”As a 'tell' I’d keep an eye on the S&P , specifically flat on year, which is 1257” says Grasso. “If that holds and we close above that level, I’d consider it a bullish sign.”

Trader Zach Karabell thinks declines in the market are much more about traders taking profits than any fundamental catalyst. If you have a longer time horizon, he thinks the path of least resistance is higher.

Trader Jon Najarian (Pete’s brother) is also bullish. He thinks the gloom in the market is partly due to MF Global’s bankruptcy but expects the caution to be short-lived.

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For Rich RepettoSandler O'Neill was a manager or a co-manager of a public offering of securities for MF Global Holdings Ltd. in the past 12 months. Sandler O'Neill has received compensation from MF Global Holdings Ltd. for investment banking services in the past 12 months. Sandler O'Neill has received compensation from MF Global Holdings Ltd. for providing products or services other than investment banking services in the 12-month period ending as of the second most recent month preceding the date of this report. MF Global Holdings Ltd. was a client of Sandler O'Neill in the 12-month period ending as of the second most recent month immediately preceding the date of this report. During that period, Sandler O'Neill provided investment banking services to MF Global Holdings Ltd..